5 money moves a prudent speculator is making now

Buckingham seeks undervalued, dividend-paying value stocks

SAN FRANCISCO (MarketWatch) — An Apple a day keeps the value-stock buyers away.

The popularity of Apple Inc. is propelling growth-stock portfolios and grating bargain-seeking investors who can’t take a bite of the stock. But that doesn’t rile John Buckingham, editor of the Prudent Speculator investment newsletter and manager of the Al Frank Fund
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.

After all, Buckingham, a dyed-in-the-wool value investor, owns Apple shares — which he initially bought for the fund years ago when the share price languished in single digits.

“My cost basis is $7” per Apple share, Buckingham said. Apple
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now reflects a bit more than 1% of the roughly $90 million fund. While Buckingham hasn’t bought Apple shares in a long while, the stock’s multiyear, odds-defying surge is a classic value-investing lesson on how markets can transform an out-of-favor company over time.

”History often shows that laggards become leaders,” Buckingham said. “I’d rather be focusing on things that haven’t performed well.”

Going against the grain is always a tough call, but that’s one of the main ways that Buckingham positions both the mutual fund and the Prudent Speculator — the top-performing newsletter over the past 15 years, according to The Hulbert Financial Digest (a service of MarketWatch). Nowadays Buckingham is scouring what he calls an “attractively priced” stock market, especially given that many top-shelf dividend-paying stocks yield more than 10-year Treasurys.

In searching for investments, Buckingham is focusing on five areas where he says the market offers good value:

1. Dive into dividends

Dividends are in demand — for good reason, Buckingham said. “Higher dividend-paying stocks have outperformed over the long term, and with lower volatility,” he noted.

Large-cap stocks in particular are attractive, Buckingham added, and while that’s not a new idea or a contrarian one, he said it’s the right call at this time.

Shares of Portugal Telecom have been hit hard, along with that country’s economy. But Buckingham said the company is fundamentally strong, with dynamic holdings including a large stake in Brazil’s Tele Norte Leste Participacoes S.A., which operates under the name Oi
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“Europe is something that a long-term oriented investor should be considering,” Buckingham said.

RadioShack is a bold call. The stock is down 27% so far this year, pushing its dividend yield north of 7%. Buckingham said the electronics retailer’s balance sheet is healthy and cash-rich.

Buckingham said he knows that many investors will see a recommendation for RadioShack and other punished stocks as throwing good money after bad. But he cautions that these picks aren’t meant to be concentrated holdings.

“All of these are to be held in a broad portfolio,” Buckingham said. His 13 favorites for 2012, for example, were up 16% as a group from Dec. 30 to March 21, not including dividends. While RadioShack is down, others, such as JPMorgan Chase, ManpowerGroup and Ship Finance International, are up sharply.

Besides, Buckingham added, “The more people don’t like our stocks, the more I’m intrigued by them.”

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